ExpertMedium1 markMultiple Choice
CPA · Question 28 · Area II: Balance Sheet Accounts
Tech Co. incurred the following costs during the year related to developing a new software product for sale:<br/>- Coding costs before technological feasibility: $50,000<br/>- Coding costs after technological feasibility: $30,000<br/>- Testing costs after technological feasibility: $20,000<br/>- Packaging design costs: $10,000<br/><br/>What amount should be capitalized as software inventory/assets?
Tech Co. incurred the following costs during the year related to developing a new software product for sale:<br/>- Coding costs before technological feasibility: $50,000<br/>- Coding costs after technological feasibility: $30,000<br/>- Testing costs after technological feasibility: $20,000<br/>- Packaging design costs: $10,000<br/><br/>What amount should be capitalized as software inventory/assets?
Answer options:
A.
$110,000
B.
$50,000
C.
$60,000
D.
$30,000
How to approach this question
Software for Sale: <br/>1. Before Tech Feasibility = Expense (R&D). <br/>2. After Tech Feasibility = Capitalize (Software Asset). <br/>3. Production/Packaging = Inventory.
Full Answer
B.$50,000✓ Correct
B
Costs incurred before technological feasibility ($50,000) are expensed as R&D. Costs incurred after technological feasibility ($30,000 + $20,000 = $50,000) are capitalized as software assets.
Common mistakes
Capitalizing R&D costs. Expensing post-feasibility costs.
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